Clearing and processing a trade typically takes too long. More trade processing should be real-time. Margining, profit and loss, and other vital information not only need to be collected on the day of the trade, but in one comprehensive step.
Such are some of the sentiments of Robert Victor, the managing member of clearing processor InteliClear. It is a relatively small trade processor with fewer than a dozen big clients. But it wants to take on the big boys of the business, such as Broadridge and SunGard.
A 30-year veteran of the business who came into the securities industry with an accounting education, he joined what would become InteliClear LLC. The firm’s leadership believed the financial services industry was investing billions of dollars in trading-related software solutions while essentially taking no action to improve the post-trade processing systems that still relied on batch-processed legacy solutions.
To accommodate the demands of the “new” Wall St., where trade volumes were higher, profit margins slimmer and regulatory and risk obligations constantly changing, InteliClear was formed.
Clearing and settlement takes three days now but the industry is mulling a move to T+2 or even T+1. Victor believes that is too long.
CQ&D: You have argued for quicker settlement cycles. In fact, you have asked why settlement cycles can’t be the same day, or T+0.
Victor: Yes.
CQ&D: Based on the recent Boston Consulting Study conducted for the Depository Trust & Clearing Corp., the industry seems ready to move to a T+2 or possibly even a T+1 standard. Do you see that happening soon?
Victor: Well, I think the people who will fight it will be the people who just can’t make dramatic changes in their systems.
CQ&D: You have some concerns about the regulatory issues of moving up to T+2 or T+1?
Victor: If the standard was changed because we see customer debits as a bad thing, then the customer will have to pay faster, because in the old days the risk was the customer not paying you.
CQ&D: And so…
Victor: I’m not sure what T+2 gains.
CQ&D: Here’s an argument for T+2: Everyone gets his or her money or securities faster. And by the way, the rest of the world is aiming for a T+2 standard, so the United States could fall behind the advanced markets if it doesn’t move to a faster settlement cycle.
Victor: That’s true. I know, for instance, the Tel Aviv stock market has a T+1 standard.
CQ&D: But you still have doubts?
Victor: Internally, I’m not sure if it speeds up the delivery process. If you don’t have the security, you still have to borrow it. I clearly see interest income savings and reduced risk in moving toward a short settlement cycle.
CQ&D: So you don’t see the benefits of the current proposal unless you do something more radical.
Victor: Yes, from my personal point of view as an accountant, years ago, we used to do accounting for the brokerage on a settlement date basis. And we used to make a notation what the trade date balance was as well. But from an accounting point of view, you really wanted to do your books and records on the trade date. Our margin system is trade date. We have certain things that are trade date, but the regulatory system is based on settlement date.
CQ&D: So you’re saying this movement to T+2 or T+1 doesn’t go far enough.
Victor: Right. If you’re going to go T+1, why not just go to T?
CQ&D: Why?
Victor: Because in any other business around the world, if you buy something today, you have the liability. In this business we say, “Oh, it’s two days or so before it is a liability.”
CQ&D: So your point is, if the industry continues to speed up trading, trading sometimes in micro-seconds, then why can’t clearing and settling also be done as quickly?
Victor: Absolutely. Why do we need to have anything beyond T+0 or T+1?
